Please refer to “ Gourmet to Go ” Case study #7 on page 480 or this site https:/

ID: 347831 • Letter: P

Question

Please refer to “Gourmet to Go” Case study #7 on page 480 or this site https://brainmass.com/business/entrepreneurial-issues/589910 , of the textbook and answer the following questions:

The textbook is Entrepreneurship, 9th ed.

Robert D. Hisrich, Michael P. Peters, and Dean A. Shepherd

McGraw Hill Publishing, 2013

ISBN: 978-0078029196

1- What is the nature of the product and its characteristics?

2- What is the nature of the competitive environment?

3- Because of the newness of the product, the promotion and advertising will be essential at startup. Analyze the market strategy in terms of sufficiency for a new product.

4- What problems might be anticipated with the product? How could these problems be minimized?

5- What are the strengths and weaknesses of management and the organizational plan?

6- Analyze financial projections for startup expenses and capital equipment.

INTRODUCTION

Today, many households have two incomes. At the end of the day the questions arise, “Who will cook?” or “What do I cook?” Time is limited. After a long day at work, few people want to face the lines at the grocery store. Often the choice is to eat out. But the expense of dining out or the boredom of fast food soon becomes unappealing. Pizza or fast-food delivery solves the problem of going out but does not always satisfy the need for nutritious, high-quality meals. Some people prefer a home-cooked meal, especially without the hassle of grocery shopping, menu planning, and time-consuming preparation.

Jan Jones is one of those people. She is a hardworking professional who would like to come home to a home-cooked meal. She would not mind fixing it herself but, once at home, making an extra trip to the store is a major hassle.

Source: This case study was prepared by Robert D. Hisrich with the intention of providing a basis for class discussion.

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Jones thought it would be great to have the meal planned and all the ingredients at her fingertips. She thought of other people in her situation and realized there might be a market need for this kind of service. After thinking about the types of meals that could be marketed, Jones discussed the plan with her colleagues at work. The enthusiastic response led her to believe she had a good idea. After months of marketing research, menu planning, and financial projections, Jones was ready to launch her new business. The following is the business plan for Gourmet to Go.

EXECUTIVE SUMMARY

Gourmet to Go is a new concept in grocery marketing. The product is a combination of menu planning and grocery delivery; a complete package of groceries and recipes for a week’s meals is delivered to a customer’s door. The target market consists of young urban professionals living in two-income households in which individuals have limited leisure time, high disposable income, and a willingness to pay for services.

The objective is to develop a customer base of 400 households by the end of the third year after start-up. This level of operation will produce a new income of about $120,000 per year and provide a solid base for market penetration in the future.

The objective will be achieved by creating an awareness of the product through an intense promotional campaign at start-up and by providing customers with first-class service and premium-quality goods.

The capital required to achieve objectives is $258,000. Jones will invest $183,000 and will manage and own the business. The remainder of the capital will be financed through bank loans.

PRODUCT

The product consists of meal-planning and grocery shopping services. It offers a limited selection of preplanned five-dinner packages delivered directly to the customer.

The criteria for the meal packages will be balanced nutrition, easy preparation, and premium quality. To ensure the nutritional requirements, Gourmet to Go will hire a nutritionist as a consultant. Nutritional information will be included with each order. The most efficient method for preparing the overall meal will be presented. Meals will be limited to recipes requiring no more than 20 minutes to prepare. Premium-quality ingredients will be a selling feature. The customer should feel that he or she is getting better-quality ingredients than could be obtained from the grocery store.

MANUFACTURING AND PACKAGING

Since the customer will not be shopping on the premises, Gourmet to Go will require only a warehouse-type space for the groceries. The store location or decor will be unimportant in attracting business. There will be fewer inventory expenses since the customer will not be choosing among various brands. Only premium brands will be offered.

It will be important to establish a reliable connection with a distributor for high-quality produce and to maintain freshness for delivery to the customer.

As orders are processed, the dinners will be assembled. Meats will be wrapped and ready for the home freezer. All ingredients will be labeled according to the dinner to which they belong. The groceries will be sorted and bagged according to storage requirements: freezer, refrigerator, and shelf. Everything possible will be done to minimize the customer’s task. Included in the packaging will be the nutritional information and preparation instructions.

Customers will be given the option of selecting their own meals from the monthly menu list or opting for a weekly selection from the company.

FUTURE GROWTH

Various options will be explored in order to expand the business. Some customers may prefer a three- or four-meal plan if they eat out more often or travel frequently. Another possibility might be the “last-minute gourmet”; that is, they can call any evening for one meal only.

Increasing the customer base will increase future sales. Expansion of Gourmet to Go can include branches in other locations or even future franchising in other cities. With expansion and success, Gourmet to Go might be a prime target for a larger food company to buy out.

INDUSTRY

The Gourmet to Go concept is a new idea with its own market niche. The closest competitors would be grocery stores and restaurants with delivery services.

Of the 660 grocery stores in the Tulsa/Tulsa County region, only two offer delivery service. They are higher-priced stores and will deliver for $4, regardless of order size. However, they offer no assistance in meal planning.

A number of pizza chains will deliver pizza as well as fried chicken. There is also a new service that will pick up and deliver orders from various restaurants. However,

482

Gourmet to Go would not be in direct competition with these services because the meals available from them are either of a fast-food type or far more expensive than a Gourmet to Go meal.

SALES PREDICTION

The market segment will be households with an income of at least $65,000 per year. In Tulsa/Tulsa County, this will cover an area including over 16,600 households that meet the target requirements of income with an age range of 24 to 50 years. By the end of the third year, a customer base of 400 households will be developed (2.3 percent of the target market). At a growth rate of 2.73 percent a year, the target market of households should increase over three years to 18,000.

FINANCIAL

Various financial statements are included in Exhibits 1 through 8.

EXHIBIT 1 Start-Up Expenses

Ad campaign

Ad agency*

$3,000

Brochures†

7,000

Radio spots‡

8,000

Newspaper ads§

7,000

Total

$25,000

Pre-start-up salaries**

16,000

Nutritionist consulting

6,000

Miscellaneous consulting (legal, etc.)

1,500

Pre-start-up rent and deposits

4,000

Pre-start-up utilities and miscellaneous supplies

2,000

$54,500

*40 hrs. @ $75/hr.

†20,000 brochures; printing, development, etc. @ $0.35/ea.

‡4-week intense campaign: 20 spots/week (30 seconds); $100/spot.

§50 ads at an average of $100/ad.

**Jan Jones @ 3 months; clerks, two @ 2 weeks.

EXHIBIT 2 Capital Equipment List

Computers:

Apple, Macintosh Office System

3 Mac systems

$3,000

Laser printer HP2300 series

1,000

Networking

2,000

Software

3,000

Total

$ 9,000

Delivery vans, Chevrolet Astro

66,000

Food lockers and freezers

15,000

Phone system (AT&T)

1,500

Furniture and fixtures

3,500

$95,000

483

EXHIBIT 3 Pro Forma Income Statement

Year 1

Mo. 1

Mo. 2

Mo. 3

Mo. 4

Mo. 5

Mo. 6

Mo. 7

Mo. 8

Mo. 9

Mo. 10

Mo. 11

Mo. 12

Sales1

2,600

3,900

6,500

13,000

19,500

23,400

26,000

28,600

31,200

33,800

36,400

39,000

Less: Cost of goods sold2

1,700

2,550

4,250

8,500

12,750

15,300

17,000

18,700

20,400

22,100

23,800

25,500

Gross profit

900

1,350

2,250

4,500

6,750

8,100

9,000

9,900

10,800

11,700

12,600

13,500

Less: Operating expenses

Salaries and wages3

7,400

9,800

Operating supplies

300

Repairs and maintenance

250

Advertising and promotion4

130

195

325

650

975

1,170

1,300

1,430

1,560

1,690

1,820

1,950

Bad debts

100

Rent5

1,667

Utilities

1,000

Insurance

600

General office

150

Licenses

200

Interest6

310

530

Depreciation7

1,271

Total operating expenses

13,378

13,243

13,373

13,698

14,023

14,218

16,968

17,098

17,228

17,358

17,488

17,618

Profit (loss) before taxes

(12,478)

(11,893)

(11,123)

(9,198)

(7,273)

(6,118)

(7,968)

(7,198)

(6,428)

(5,658)

(4,888)

(4,118)

Less: Taxes

Net profit (loss)

(12,478)

(11,893)

(11,123)

(9,198)

(7,273)

(6,118)

(7,968)

(7,198)

(6,428)

(5,658)

(4,888)

(4,118)

(1)Average unit sale for groceries is about $43.00, plus $10.00 per week for delivery (Exhibit 1), making the monthly unit sales per household (2 people) about $212.00.

(2)Cost of goods sold—80 percent of retail grocery price, or $32.00 per household per week ($170.00/month household). (80 percent an average margin on groceries.)

(3)Salaries and wages—Ms. Jones’s salary will be $5,000/month. Order clerks will be paid $1,300/month, and delivery clerks will be paid $1,100/month. One additional order clerk and delivery clerk each will be added once sales reach 100 households, and again at 200 households. Salaries will escalate at 6 percent/year.

(4)Advertising and promotion—The grocery industry standard is 1 percent of sales. However, Gourmet to Go, being a new business, will require more than that level; 5 percent of sales is used in this plan. (Special pre-start-up advertising is covered with other start-up expenses.)

(5)Rent—2,000/ft.2 @ $10.00/ft.2; $1,667/month; escalate at 6 percent/year.

(6)Interest—Loans on computer ($10,000) and delivery vehicles ($22,000 ea.) at 12.0 percent/year. (Delivery vehicles will be added with delivery clerks.) (Debt service—based on three-year amortization of loans with payments of 1/3 at the end of each of three years.)

(7)Depreciation—All equipment will be depreciated per ACRS schedules: vehicles and computers—3 years; furniture and fixtures—10 years.

484

EXHIBIT 4 Pro Forma Income Statement

Year 2

Year 3

Sales1

136,500

156,000

194,698

234,000

253,500

273,000

292,500

312,000

Less: Cost of goods sold2

89,250

102,000

127,302

153,000

165,750

178,500

191,250

204,000

Gross profit

47,250

54,000

67,395

81,000

87,750

94,500

101,250

108,000

Less: Operating expenses

Salaries and wages3

31,164

38,796

41,124

Operating supplies

900

Repairs and maintenance

750

Advertising and promotion4

6,825

7,800

9,735

11,700

12,675

13,650

14,625

15,600

Bad debts

300

Rent5

5,301

5,619

Utilities

3,000

Insurance

1,800

General office

450

Interest6

1,280

1,940

1,720

1,410

1,190

970

Depreciation7

6,910

7,493

Total operating expenses

58,680

67,947

69,662

71,627

75,520

76,275

77,030

78,005

Profit (loss) before taxes

(11,430)

(13,947)

(2,267)

9,373

12,230

18,225

24,220

29,995

Less: Taxes

Net profit (loss)

(11,430)

(13,947)

(2,267)

9,373

12,230

18,225

24,220

29,995

(1)Average unit sale for groceries is about $43.00, plus $10.00 per week for delivery (Exhibit 1), making the monthly unit sales per household (2 people) about $212.00.

(2)Cost of goods sold—80 percent of retail grocery price, or $32.00 per household per week ($138.00/month household). (80 percent an average margin on groceries—Progressive Grocer; April 1984; p. 94.)

(5)Rent—2,000/ft.2 @ $8.00/ft.2; 1,333 $1/month; escalate at 6 percent/year.

(6)Interest—Loans on computer ($10,000) and delivery vehicles ($12,000 ea.) at 12.5 percent year. (Delivery vehicles will be added with delivery clerks.) (Debt service—based on three-year amortization of loans with payments of 1/3 at the end of each of three years.)

(7)Depreciation—All equipment will be depreciated per ACRS schedules: vehicles and computers—3 years; furniture and fixtures—10 years.

485

EXHIBIT 5 Pro Forma Cash Flow Statement

Yearl

Mo. 1

Mo. 2

Mo. 3

Mo. 4

Mo. 5

Mo. 6

Mo. 7

Mo. 8

Mo. 9

Mo. 10

Mo. 11

Mo. 12

Total

Cash receipts

Sales

2,600

3,900

6,500

13,000

19,500

23,400

26,000

28,600

31,200

33,800

36,400

39,000

263,900

Other

Total cash receipts

2,600

3,900

6,500

13,000

19,500

23,400

26,000

28,600

31,200

33,800

36,400

39,000

263,900

Cash disbursements

Cost of goods sold

1,700

2,550

4,250

8,500

12,750

15,300

17,000

18,700

20,400

22,100

23,800

25,500

172,550

Salaries and wages

7,400

9,800

103,200

Operating supplies

300

3,600

Repairs and maintenance

250

3,000

Advertising and promotion

130

195

325

650

975

1,170

1,300

1,430

1,560

1,690

1,820

1,950

13,195

Bad debts

100

1,200

Rent

1,667

20,004

Utilities

1,000

12,000

Insurance

600

7,200

General office

150

1,800

Licenses

200

Interest

310

530

5,040

Debt service (principal)

10,333

Total cash disbursements

13,807

14,522

16,352

20,927

25,502

28,247

32,697

34,527

36,357

38,187

40,017

52,180

353,322

Net cash flow

(11,207)

(10,622)

(9,852)

(7,927)

(6,002)

(4,847)

(6,697)

(5,927)

(5,157)

(4,387)

(3,617)

(13,180)

(89,422)

EXHIBIT 6 Pro Forma Cash Flow Statement

Year 2

Year 3

Cash receipts

Sales

136,500

156,000

194,698

234,000

253,500

273,000

292,500

312,000

Other

Total cash receipts

136,500

156,000

194,698

234,000

253,500

273,000

292,500

312,000

Cash disbursements

Cost of goods sold

89,250

102,000

127,302

153,000

165,750

178,500

191,250

204,000

Salaries and wages

31,164

38,796

41,124

Operating supplies

900

Repairs and maintenance

750

Advertising and promotion

6,825

7,800

9,735

11,700

12,675

13,650

14,625

15,600

Bad debts

300

Rent

5,301

5,619

Utilities

3,000

Insurance

1,800

General office

450

Licenses

Interest

1,280

1,940

1,720

1,410

1,190

970

Debt service (principal)

7,333

10,333

7,333

10,333

Total cash disbursements

141,020

170,370

190,054

228,050

241,111

254,616

260,788

284,846

Net cash flow

(4,520)

(14,370)

4,643

5,950

12,389

18,384

31,712

27,154

EXHIBIT 7 Pro Forma Balance Sheets

End of:

Year 1

Year 2

Year 3

Year 1

Year 2

Year 3

Assets

Liabilities

Current assets

Accounts payable

12,750

21,217

31,875

Cash

3,000

5,000

7,000

Notes payable

Accounts receivable

19,500

32,450

48,750

Total current liabilities

12,750

21,217

31,875

Inventory
Supplies

12,750

300

21,217

300

31,875

300

Long-term liabilities

Bank loans payable

22,000

42,667

47,000

Prepaid expenses

1,667

1,767

1,873

Personal loans payable

Total current assets

37,217

60,734

89,798

Total long-term liabilities

42,667

47,000

22,000

Fixed assets

Total liabilities

55,417

68,217

53,875

Furniture and fixtures

18,000

16,000

14,000

Owner’s equity

Vehicles

33,000

32,780

8,140

Paid-in capital

133,889

62,897

28,068

Equipment

6,750

3,330

Retained earnings

(94,339)

(18,271)

29,995

Total fixed assets

57,750

52,110

22,140

Total owner’s equity

39,550

44,627

58,063

Total assets

94,967

112,844

111,938

Total liabilities and equity

94,967

112,844

111,938

487

EXHIBIT 8 Sources and Uses of Funds

Sources of Funds

Jan Jones (personal funds)

$182,913

Bank loans for computer and vehicles

75,000

Total sources

$257,913

Uses of Funds

Computer, peripherals, and software

$9,000

Food lockers and freezers

15,000

Delivery vehicles*

66,000

Phone system

1,500

Miscellaneous furniture and fixtures

3,500

Start-up expenses

54,600

Working capital

108,313

Total uses‡

$257,913

*See detail, following.

†To cover negative cash flow over first 1½ years of operation. (See pro forma cash flow statements.)

‡Total for initial 3-year period. Computer and one delivery van will be acquired prior to start-up, one delivery van will be added 6 months after start up, and another will be added 15 months after start-up. Financing will be handled simultaneously with procurement.

MARKETING
Distribution

The product will be delivered directly to the customer.

Sales Strategy

Advertising will include newspaper ads, radio spots, an Internet Web page, and direct-mail brochures. All four will be used during normal operations, but an intense campaign will precede start-up. A series of “teaser” newspaper ads will be run prior to start-up, announcing a revolution in grocery shopping. At start-up, the newspaper ads will have evolved into actually introducing the product, and radio spots will begin as well. A heavy advertising schedule will be used during the first four weeks of business. After start-up, a direct mailing will detail the description of the service and a menu plan.

Newspaper ads aimed at the target markets will be placed in entertainment and business sections. Radio spots will be geared to stations most appealing to the target market. Since the product is new, it may be possible to do interviews with newspapers and obtain free publicity.

Sales promotions will offer large discounts to first-time customers. These promotions will continue for the first six months of operations.

The service will be priced at $10 per week for delivery and planning, with the groceries priced at full retail level. According to the phone survey, most people who were interested in the service would be willing to pay the weekly service charge.

MANAGEMENT

The management will consist of the owner/manager. Other employees will be delivery clerks and order clerks. It is anticipated that after the business grows, an operations manager might be added to supervise the employees.

Ad campaign

Ad agency*

$3,000

Brochures†

7,000

Radio spots‡

8,000

Newspaper ads§

7,000

Total

$25,000

Pre-start-up salaries**

16,000

Nutritionist consulting

6,000

Miscellaneous consulting (legal, etc.)

1,500

Pre-start-up rent and deposits

4,000

Pre-start-up utilities and miscellaneous supplies

2,000

$54,500

Explanation / Answer

ISBN: 978-0078029196

1- What is the nature of the product and its characteristics?

Product is a grocery menu, where people can identify the receipes for there weekly meals and order the items of the receipes from the company.

Main characteristics of the product are:

- it allows users to have healthy home cooked food.

-different options on daily basis with no hustle to collecting the ingrediants first.

-Easy to cook.

2- What is the nature of the competitive environment?

Since it is a new idea, there are no direct competitors for the products. only competition in the market are retail or grocery stores which offers the ingrediants for the receipe.

3- Because of the newness of the product, the promotion and advertising will be essential at startup. Analyze the market strategy in terms of sufficiency for a new product.

So far the strategy applied by the company is good, they are targeting the customers who lives in urban area, with the age target of 20 to 40 years professional group, who works a day and basically do not get enough time for healthy cooking. Again company has to advertise more to popularize the product by preparing pamplets, doing companies visit to introduce the product, etc. this will help in growing the business by making the product popular amoung the users.

4- What problems might be anticipated with the product? How could these problems be minimized?

One of the expected problem with the product is that the users will get bore with the repating schedule after the week, so company has to come up with good health receipes with lots of options which will keep the interest of the customer.

Another problem will be the competition, whihc will occur onces the product get popular, to overcome this problem again company has to come up with new varied prodcuts.

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